Joint Route Planning under Varying Market Conditions

Abstract

Purpose - To provide empirical evidence on the level of savings that can be attained by joint route planning and how these savings depend on specific market characteristics. Design/methodology/approach - Joint route planning is a measure that companies can take to decrease the costs of their distribution activities. Essentially, this can either be achieved through horizontal cooperation or through outsourcing distribution to a logistics service provider. The synergy value is defined as the difference between distribution costs in the original situation where all entities perform their orders individually, and the costs of a system where all orders are collected and route schemes are set up simultaneously to exploit economies of scale. This paper provides estimates of synergy values, both in a constructed benchmark case and in a number of real-world cases. Findings - It turns out that synergy values of 30 per cent are achievable. Furthermore, intuition is developed on how the synergy values depend on characteristics of the distribution problem under consideration. Practical implications - The developed intuition on the nature of synergy values can help practitioners to find suitable combinations of distribution systems, since synergy values can quickly be assessed based on the characteristics of the distribution problem, without solving large and difficult vehicle routing problems. Originality/value - This paper addresses a major impediment to horizontal cooperation: estimating operational savings upfront.